Buying a franchise: who owns the equipment?

When entering the franchise market in Portugal, a fully equipped outlet may seem like a straightforward benefit to assess. But paying the initial investment does not necessarily mean you own everything installed on the premises. Machinery, furniture and terminals may belong to the franchisee, the franchisor or third parties. Before buying, clarify the status of each asset and the costs associated with using it.

1. Separate ownership, use and payment

The start-up budget may include a single line item for ‘equipment’. That label does not explain whether you are buying the assets, paying to hire them or simply covering their installation. Nor does it clarify whether ownership depends on payment of the price in full.

Ask for an inventory to be attached to the contract, with enough detail to identify each piece of equipment. Where available, include the make, model and serial number. For each item, record:

• Owner: your company, the franchisor or an external supplier.
• Basis of use: purchase, hire, finance lease or a loan free of charge, known in Portuguese law as comodato.
• Associated payments: purchase price, instalments, rental payments, deposits and installation costs.
• Supporting document: contract, invoice, handover record or other relevant document.
• Intended outcome: remaining at the outlet, subsequent purchase or return.

A machine provided without a purchase price may come with obligations relating to its use or maintenance. Conversely, an asset you buy may be subject to a retention-of-title clause. Do not confuse having equipment on the premises with being free to sell, replace or move it.

If you are acquiring an existing outlet, also check that the seller is entitled to transfer the assets and that any agreements governing their use can be transferred to your company.

2. Understand the rules that apply in Portugal

Portugal has no specific law governing franchise agreements. They are classed as ‘atypical contracts’, subject to the general rules of the Portuguese Civil Code, including freedom of contract under Article 405 and good faith in negotiating and performing contracts.

Ownership of equipment does not automatically pass to the franchisee when they join the network. The franchisor may retain ownership of assets it provides, and the contractual documents should clarify the conditions governing their use. Purchases, hire arrangements and other forms of agreement are also subject to their respective legal rules.

Where standard contract terms are used, Decree-Law No. 446/85 of 25 October, as amended, applies. Among other things, this legislation imposes duties to communicate and explain terms, and provides for scrutiny of prohibited clauses. Signing a standard form does not remove the need for that scrutiny.

There is also no legally prescribed format for a pre-contractual franchise disclosure document. This does not remove the duties arising from good faith, including those under Article 227 of the Civil Code. Ask for clarification of the material terms of the investment before making commitments, and have a lawyer review any ambiguities.

3. Establish who pays for breakdowns and replacements

Knowing who owns the equipment is only part of the assessment. It is equally important to identify who bears the costs while the business is operating.

Ask for a written allocation of responsibilities covering preventive maintenance, repairs, parts, technicians’ call-out charges, legally required inspections and insurance. Also check who can make warranty claims and to whom you should report a breakdown.

Test the agreement against a concrete scenario: the main machine stops working during a working day. Who contacts technical support? Is replacement equipment available? Does the contract specify a response time? Who pays for transport? Do not assume that the brand’s general support includes these services.

Also distinguish between replacement following a breakdown and an upgrade required by the network. Equipment that still works may no longer meet the franchisor’s specifications. Ask under what conditions a replacement can be required, how much notice must be given and who pays.

When comparing offers, add the foreseeable costs of use to the initial price. Avoid assigning a resale value to anything your company will not own.

4. Document the handover and return conditions

Before accepting the assets, obtain the relevant contracts and check that they match the agreed inventory. At handover, record their condition, accessories, technical documentation and any visible defects. Photographs and a signed handover record can help reduce future disputes.

For equipment you will have to return, clarify what counts as fair wear and tear, who dismantles and transports the assets, and how any damage will be assessed. Also check how deposits and outstanding instalments will be handled. These terms help you assess the commitment from the outset, rather than only when a problem arises.

Practical conclusion: do not approve a generic equipment line item. Insist on an inventory identifying the owner, cost of use, responsibilities and intended outcome for each asset. Only then can you compare what you will actually receive for your investment.